Pre-CPI note and some interesting charts

In case you didn’t catch my post on Twitter, I exited the short eur/usd position I put on in my last post.

Fidenza Macro @fidenzamacro

Covering the eur/usd short I recommended yesterday at breakeven. I'm getting cold feet for two reasons - price action in USD remains heavily offered, and we are too close to US CPI where a tactical USD position is just a coin flip.

The premise for the trade was that USD was exhausted, based on TD Demark indicators. However USD continues to push higher into today’s CPI, through which the Demark signal is irrelevant. Prematurely covering my short usd/cnh position was also a shame, but I still have short USD exposure in the rest of my portfolio.

Tonight’s CPI is the biggest market event of the month. I’m leaning towards a lower than expected number because I think the market underestimates the extent to which shelter is slowing down. Last month saw an uptick in OER+rent despite leading real-time price data suggesting it should have ticked lower. If OER+rent “catches down”, then we will have a downside surprise on our hands.

Chart courtesy of Vanda Research

Inflation swaps have also been impressive predicting the recent lower than expected misses. They are pointing to a 6.4% headline CPI, 0.1% lower than the Bloomberg estimate.

Michael McDonough @M_McDonough

Inflation Swaps & the @Kalshi Median are both suggesting headline CPI YoY may come in a little below the current 6.5% consensus forecast -- CPI is out on Thursday: {ECAN<Go>}

Last month, S&P 500 futures pumped in the 24 hours leading to the CPI, then spiked seconds before the number came out. That rally failed and we ended up selling off from around 4140 down to 3800 over the next week.

Today we are seeing a similar scenario where stocks are getting bid into the CPI. If we see a spike on the release, I’ll be going short into it.

Crypto is looking interesting this week. ETH has broken resistance at 1360 after holding the 2022 lows despite FTX and the ensuing fallout.

BTC hasn’t confirmed the breakout though. It needs to break 18400 to confirm a broader crypto rally, and that probably will require a weak CPI tonight.

Eur/chf spot, after doing absolutely nothing for 3 months, has broken through horizontal resistance and the 200 day moving average at 0.9939-50. This is a beautiful daily cup and handle formation and the projection from the low to the break suggests eur/chf could rally to 1.05. I bought after the break at 0.9968, but for the purposes of tracking my trades on this blog, I’ll record my entry at 1.0031. I will leave my stop at 0.9920 below the break level.

Current positions

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